Nigeria’s currency has continued to depreciate at the forward market, amidst growing concerns that the Central Bank of Nigeria (CBN) might have to devalue the naira again.
The 21-month naira forward contract was trading at N509 per dollar as at 4:30 pm on Monday, indicating that currency traders have foreseen the naira falling to that rate before the end of 2020.
Last month, Nigeria’s apex bank moved to combine the two rates (i.e., the official rate and rate for investors) when it devalued the naira from N307 to N360 to the dollar. The CBN had also increased the rate for investors and exporters from N366 to N380 to the dollar on March 21, 2020.
Note that the forward market is an OTC (Over the Counter) market platform that sets the price of a financial instrument or asset for future delivery designed in contracts. Forward markets are used for trading a range of financial instruments, especially in the currency market.
In the meantime, some retail investors are trying to diversify their portfolios by shifting to foreign-dominated assets. Omotola Abimbola, an analyst at Chapel Hill Denham, said via phone to Bloomberg, “For us to see to improved convergence in the rates, we need to see the central bank stepping into the foreign exchange market again to begin intervention sales.”
The Nigerian currency had been hitting low levels on the over-the-counter spot and black markets since early March, after the Central Bank devalued the naira by 15%, triggered by falling oil prices.